Visa Inc. has introduced a series of incentives to spur the U.S. to adopt chip cards – a change once considered as likely as the country switching to the metric system.
The U.S. has lagged in its adoption of the EMV Integrated Circuit Card Specifications, commonly called chip-and-PIN, which many countries use to improve security at the point of sale. Skeptics have said the U.S. banking system is too fractured to support a widespread shift to the standard, and that the cost for merchants is too high to justify installing new terminals. Now Visa says U.S. banks and merchants are ready to make the switch, and on Tuesday it set its first deadline just over a year away.
"Two years ago, over a third of the population [of bank card security professionals] said that EMV would never get here," says Julie Conroy McNelley, a senior risk and fraud analyst at Aite Group LLC. "I would have been one of [them]."
But this year, that number dropped to 17%, spurred by a number of events, she says.
For one, enough major banks have agreed to issue EMV cards to finally move the country toward widespread acceptance.
This year, Wells Fargo & Co., JPMorgan Chase & Co., U.S. Bancorp and Citigroup Inc. have committed to issuing EMV-equipped cards, at least to travelers.
"We have seen so many factors change in the last two years," McNelley says. "Visa wouldn't have been able to push through an edict like this unless they had the majority of the issuers on board."
Merchants are also more outspoken about wanting to use chip cards to combat fraud, she says.
By Visa's October 2012 deadline, any merchant that accepts 75% of its annual Visa transactions through a terminal that can handle contact and contactless chip transactions will not have to validate compliance with the Payment Card Industry Data Security Standard.
"The costs [of PCI validation] can be significant," says Eduardo Perez, the head of Visa's global payments risk group. It costs some merchants $500,000 a year to perform the assessments, he says.
Visa is also trying to lay the groundwork for mobile payments acceptance. The systems it is testing rely largely on the contactless payments infrastructure, and "we're seeing a tremendous interest in mobile payments," Perez says.
When upgrading terminals, adding chip acceptance can cost just $30 more a unit, he says. This does not include other infrastructure expenses, Perez says, but the point is that the validation waiver addresses the concerns merchants expressed over upgrade investments.
The waiver offer in the U.S. is an extension of the Technology Innovation Program, which Visa introduced in other countries in February. The U.S. was excluded then because of regulatory uncertainty, but that settled somewhat after the Federal Reserve Board announced its cap for debit interchange rates, as required under the Durbin amendment to the Dodd-Frank Act.
By April 2013, U.S. "acquirer processors and sub-processor service providers" must support chip transactions. Perez says this is the only mandatory part of Visa's effort to spur chip card adoption.
And by October 2015 liability for fraudulent transactions on chip cards will in most cases shift from issuers to merchant acquirers if the merchants do not have chip-accepting terminals for contact cards. Issuers currently bear the liability, and would remain liable for fraud on contactless cards. Gas stations have until October 2017 until the liability shift takes effect.
"The liability shift has been the most traditional and effective" method of encouraging EMV acceptance in other countries, Perez says.
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